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Table of ContentsCorporate Information

Financial Highlights

Chairman’s Statement 2008

Directors and Company Secretary

Senior Management

Management Discussion and Analysis

Performance Review

Corporate Debt and Financial Conditions

Treasury Policies

Investment Properties Valuations

Financial Assets Held for Trading – Trading Securities

Development Programmes

Disposals and Acquisitions

Management Contracts

Prospects

Corporate Social Responsibility

Human Resources

25

32

61

62

63

64

65

67

68

148

2

3

4

5

10

12

12

18

19

19

20

20

22

22

22

22

24

Corporate Governance Report

Report of the Directors

Independent Auditor’s Report

Consolidated Balance Sheet

Balance Sheet

Consolidated Income Statement

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Consolidated Financial Statements

Five Year Summary

| Corporate Information2

CorporateInformation

As at 17 March 2009

Board of DirectorsExecutive DirectorsMr KUOK Khoon Ean (Chairman)Mr KUOK Khoon Loong, Edward (President and Chief Executive Officer)Mr LUI Man Shing (Deputy Chairman)Mr Madhu Rama Chandra RAOMr Giovanni ANGELINI

Non-Executive DirectorsMr HO Kian GuanMadam KUOK Oon KwongMr Roberto V. ONGPINMr Alexander Reid HAMILTON*Mr Timothy David DATTELS*Mr WONG Kai Man, BBS, JP*Mr Michael Wing-Nin CHIU*Mr HO Kian Hock (Alternate to Mr HO Kian Guan)* Independent Non-Executive Directors

Remuneration CommitteeMr KUOK Khoon Ean (Chairman)Mr Alexander Reid HAMILTONMr WONG Kai Man, BBS, JP

Audit CommitteeMr Alexander Reid HAMILTON (Chairman)Mr HO Kian GuanMr WONG Kai Man, BBS, JP

Company SecretaryMs TEO Ching Leun

AuditorPricewaterhouseCoopersCertified Public Accountants22nd FloorPrince’s BuildingCentralHong Kong

Registered AddressCanon’s Court22 Victoria StreetHamilton HM12Bermuda

Head Office and Principal Place of Business21st FloorCITIC TowerNo. 1 Tim Mei AvenueCentralHong Kong

Principal Share RegistrarButterfield Fulcrum Group (Bermuda) LimitedRosebank Centre11 Bermudiana RoadPembrokeBermuda

Branch Share Registrar in Hong KongTricor Abacus Limited26th Floor, Tesbury Centre28 Queen’s Road EastWanchaiHong Kong

Key DatesClosure of Registers of Members25 May 2009 to 27 May 2009, both dates inclusive

Annual General Meeting27 May 2009

Payment of 2008 Final Dividend#5 June 2009

Stock CodeThe Stock Exchange of Hong Kong Limited00069

# Subject to shareholders’ approval of the final dividend at the Annual General Meeting

Company’s website: www.shangri-la.comFinancial information: www.ir.shangri-la.com

Financial Highlights

Financial Highlights | 3

2008 2007 2008/2007 2006 2005 2004US$ Million US$ Million % Change US$ Million US$ Million US$ Million

CONSOLIDATEDSales 1,353 1,219 11% 1,003 842 726EBITDA 489 442 11% 350 265 223Profit attributable to equity holders of the Company 166 341 -51% 202 151 114Dividends 89 100 -11% 76 65 58Total equity 4,251 4,185 2% 2,975 2,630 2,165Net assets attributable to the Company’s equity holders

3,953 3,882 2% 2,699 2,381 1,978

Net borrowings to total equity ratio 34.5% 20.5% -68% 41.0% 33.0% 40.2%Earnings per share (in US cents) 5.76 12.76 -55% 7.97 6.14 4.85Dividends per share (in HK cents) 24.00 27.00 -11% 23.00 20.00 19.00Net assets per share attributable to the Company’s equity holders (in US dollars)

1.37 1.35 2% 1.05 0.94 0.82

Net assets (total equity) per share (in US dollars) 1.47 1.45 1% 1.16 1.04 0.90

Hotel – Hong KongHotel – SingaporeHotel – Malaysia, Thailand and OthersProperties

Hotel – Mainland ChinaHotel – The PhilippinesHotel ManagementCorporate Expenses

2008 2007 2006 2005 2004

US$ Million

550

400450500

350

250

150200

300

50

-50

100

0 20%

41%

9%

14%

14%

6%4%

22%

(7%)(8%)

38%

13%

17%

10%

4%3%

489442

350

265223

EBITDA (earnings before interest, tax, depreciation, amortization and non-operating items)

2008 2007 2006 2005 2004

14

12

10

6

2

4

8

0

US Cents

5.76

12.76

7.97

4.856.14

Earnings Per Share

Mainland ChinaSingapore and MalaysiaOther Areas

2008 2007 2006 2005 2004

100

80

40

20

60

0

-10

US$ Million

17%

8%

14%

92%

16%

87%

(1%) (1%)

83% 92% 85%

77

99

42

64

418%

Share of Profit of Associates by Geographical Area

2008 2007 2006 2005 2004

4,500

4,000

3,500

2,500

1,500

2,000

3,000

0

500

1,000

US$ Million

4,251 4,185

2,9752,630

2,165

Total Equity

Chairman’s Statement 2008

| Chairman’s Statement 20084

On behalf of the Board I am pleased to present the Annual Report of Shangri-La Asia Limited covering the financial year 2008.

The year started on a strong note with most hotels maintaining their performance levels achieved through 2007. However from the second quarter of the year the progressive deterioration in the world financial markets started to affect the regional economies of Asia as well as a decline in visitor arrivals and travel spending in the region.

Whilst Group revenue increased in 2008 to US$1,353,271,000 (2007: US$l,219,248,000), net profit attributable to shareholders in 2008 declined to US$165,940,000 (2007: US$340,863,000). This was after providing for minority interests as well as exceptional items (losses) of US$82,915,000 which comprised mainly of fair value year end adjustments on financial investment and interest rate hedging commitments.

Earnings per share declined to US5.76 cents per share (2007: US12.76 cents per share).

A final dividend of HK$0.10 per ordinary share has been proposed for FY2008. Together with the interim dividend of HK$0.14 per ordinary share, the total dividend for FY2008 will be HK$0.24 per ordinary share.

The Group operated 60 hotels at the end of 2008 up from 57 hotels at the end of 2007 with equity invested in 45 hotels and the remaining 15 hotels under management.

We were extremely fortunate in early May to have avoided any casualties or significant damage to hotel property when fierce storms and floods swept through parts of Myanmar and an earthquake erupted in Sichuan province. Despite the dangerous and demanding circumstances surrounding each disaster, our hotel management and staff continued to watch over the safety and provided comfort and care to all our hotel guests as well as to the local community.

In August Beijing celebrated its hosting of the Olympic Games. Much excitement and anticipation built up in the months preceding this event. However, as a result of strict visa issuance controls due to mounting public security issues, the budgeted foreign visitor arrivals and subsequent high hotel room occupancies failed to materialize.

The outlook in 2009 for the global economy and for the hotel industry remains depressed. However, with uncertainty, there lies opportunity. The Group will continue to focus on improving our product as well as service offerings whilst prudently looking for new investment opportunities.

The Group has opened four new hotels so far this year and has plans to open another six hotels before the end of 2009.

I would like to thank the management and staff for their hard work and dedication during the year and my fellow board members for their support and guidance throughout.

KUOK Khoon EanChairman

17 March 2009

Directors and Company Secretary | 5

Directors and Company SecretaryExecutive Directors

Mr KUOK has been the Chairman and an Executive Director of the Company since April 2008. He is also a director of a number of companies within the Shangri-La Asia Group as well as of several listed companies: SCMP Group Limited (listed on The Stock Exchange of Hong Kong Limited (“HKSE”)), The Bank of East Asia, Limited (listed on the HKSE), The Post Publishing Public Company Limited (listed on the Stock Exchange of Thailand (“Thai-SE”)) and Wilmar International Limited (listed on the Singapore Exchange Securities Trading Limited (“SGX-ST”)). Mr KUOK is also a director of Kerry Group Limited and Kerry Holdings Limited, substantial shareholders of the Company. He holds a Bachelor’s degree in Economics from Nottingham University. He is the cousin of Mr KUOK Khoon Loong, Edward, Madam KUOK Oon Kwong and Ms TEO Ching Leun.

Mr KUOK was appointed as an Executive Director of the Company in March 2003 and was appointed as the President and Chief Executive Officer of the Company in April 2008. He was previously the Chairman of the Company and of Kerry Properties Limited (listed on the HKSE) and a Director of Allgreen Properties Limited (listed on the SGX-ST). He is also a director of a number of companies within the Shangri-La Asia Group, and the Vice Chairman of Kerry Holdings Limited, a substantial shareholder of the Company, and the Chairman of Shang Properties, Inc. (listed on the Philippine Stock Exchange, Inc. (“PSE”)). He has a Master’s degree in Economics from the University of Wales. Mr KUOK is the brother of Madam KUOK Oon Kwong and the cousin of Mr KUOK Khoon Ean and Ms TEO Ching Leun.

KUOK Khoon EanAged 53, Chairman

KUOK Khoon Loong, EdwardAged 56, President and Chief Executive Officer

| Directors and Company Secretary6


Mr LUI was appointed as an Executive Director of the Company in March 2002 and was elected as the Deputy Chairman of the Company in March 2007. He is a director of a number of companies within the Shangri-La Asia Group. He is the Vice Chairman of Shangri-La Hotel Public Company Limited (“SHPCL”) (listed on the Thai-SE) and was the Managing Director of SHPCL from February 2007 to February 2009. He is also a director of Kerry Holdings Limited, a substantial shareholder of the Company.

Mr RAO was appointed in December 2008. He joined Shangri-La International Hotel Management Limited in May 1988 as group financial controller. He was appointed chief financial officer of the Company in 1997. He is a director of a number of companies within the Shangri-La Asia Group. He was previously with a leading chartered accountancy practice in Mumbai India for 17 years, including 12 years as partner. Mr RAO graduated from the University of Mumbai and is a fellow member of the Institute of Chartered Accountants of India.

Mr ANGELINI joined the Shangri-La Asia Group in August 1993 and was appointed as an Executive Director of the Company in June 1999. He is a director of a number of companies within the Shangri-La Asia Group as well as of Kerry Holdings Limited, a substantial shareholder of the Company. Previously, he was the Managing Director and Chief Executive Officer of Shangri-La International Hotel Management Limited, the Vice President, Operations, of Shangri-La Hotels and Resorts and the General Manager of Island Shangri-La, Hong Kong.

LUI Man ShingAged 65, Deputy Chairman

Madhu Rama Chandra RAOAged 57, Executive Director

Giovanni ANGELINIAged 63, Executive Director


Non-Executive Directors

Mr HO was appointed in May 1993. He is the Executive Chairman of the Keck Seng Group of companies including Keck Seng (Malaysia) Berhad (listed on the Bursa Malaysia Securities Berhad (“BMSB”)) and Keck Seng Investments (Hong Kong) Limited (listed on the HKSE). Mr HO is a Director of Parkway Holdings Limited (listed on the SGX-ST). He also serves on the board of Shangri-La Hotel Public Company Limited, a subsidiary of the Company. He is the brother of Mr HO Kian Hock.

Madam KUOK was appointed in November 1999. She was the Company Secretary of Shangri-La Hotel Limited (“SHL”), Singapore, now a subsidiary of the Company, from 1986 – 1988. In 1988, she joined the Board of SHL and is currently its Executive Chairman. She was appointed as a Director of Allgreen Properties Limited (listed on the SGX-ST) in 1986. Madam KUOK is also a Director of a number of companies within the Shangri-La Asia Group. She is an Advocate & Solicitor (Barrister-at-Law) from Gray’s Inn, London. Madam KUOK is the sister of Mr KUOK Khoon Loong, Edward, and the cousin of Mr KUOK Khoon Ean and Ms TEO Ching Leun.

Mr ONGPIN was appointed in August 2003. He is also the Deputy Chairman of SCMP Group Limited, listed on the HKSE, and the Chairman of PhilWeb Corporation and ISM Communications Corporation, Vice Chairman of Philex Mining Corporation and Director of Petron Corporation, all of which are listed on the PSE. He is also a Director of Araneta Properties, Inc. and Chairman of the following companies: Eastern Telecommunications Philippines, Inc. (ETPI), Alphaland Corporation, Developing Countries Investment Corp. and La Flor de La Isabela, Inc. Prior to 1979, Mr ONGPIN was the Chairman and Managing Partner of the SGV Group, the largest accounting and consulting firm in Asia. He was the Minister of Trade and Industry of the Republic of the Philippines from 1979 to 1986. He has an MBA from Harvard University and is a Certified Public Accountant (Philippines).

HO Kian GuanAged 63, Non-Executive Director

KUOK Oon KwongAged 62, Non-Executive Director

Roberto V. ONGPINAged 72, Non-Executive Director

| Directors and Company Secretary8


Mr HAMILTON was appointed in November 2001. He is an Independent Non-Executive Director of a number of companies including CITIC Pacific Limited, China COSCO Holdings Company Limited and Esprit Holdings Limited (all listed on the HKSE), JF China Region Fund, Inc. (a USA registered closed end fund quoted on the New York Stock Exchange) and China Central Properties Limited (listed on the AIM of London Stock Exchange). He is a member of the Institute of Chartered Accountants of Scotland, a fellow member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Institute of Directors. He was a Partner in Price Waterhouse for 16 years and has more than 20 years of audit and accounting experience. Mr HAMILTON is the Chairman of the Board’s Audit Committee.

Mr WONG was appointed in July 2006. He is an accountant with 32 years of audit, initial public offer and computer audit experience. He was a member of the Growth Enterprise Market Listing Committee of the HKSE from 1999 to 2003. He retired as an audit partner from PricewaterhouseCoopers, Hong Kong on 30 June 2005. He is also a director of SUNeVision Holdings Ltd. (listed on the Growth Enterprise Market of the HKSE) and SCMP Group Limited and China Construction Bank Corporation, both listed on the Main Board of the HKSE. He obtained his Bachelor of Science degree in Physics from the University of Hong Kong and Master of Business Administration degree from the Chinese University of Hong Kong.

Mr DATTELS was appointed in February 2004. Mr DATTELS is currently a Partner for TPG Capital, L.P., based in San Francisco with a focus on Asian investing. He serves as a Director of Parkway Holdings Limited (listed on the SGX-ST) and Sing Tao News Corporation Limited (listed on the HKSE). He has held various management positions at Goldman Sachs and was elected Partner in 1996. He was Head of Investment Banking for all Asian countries outside of Japan from 1996 to 2000 where he advised several of Asia’s leading entrepreneurs and governments. He holds a BA (Honors) from The University of Western Ontario and an MBA from Harvard Business School.

Alexander Reid HAMILTONAged 67, Independent Non-Executive Director

Timothy David DATTELSAged 51, Independent Non-Executive Director

WONG Kai Man, BBS, JPAged 58, Independent Non-Executive Director

Independent Non-Executive Directors


Mr CHIU was appointed in June 2007. Mr CHIU is currently the owner, president and chairman of Prima Donna Development Corporation, Prima Hotels Corporation and several wholly owned companies focused on the development, ownership and management of hotels and other real estate assets and interests in California, Oregon and Washington, District of Columbia. He has extensive experience in the hotel and the real estate industries. Prior to settling in the United States in 1975, Mr CHIU held various management positions in a number of hotels in London, Seattle, Singapore, Penang, Fiji, Las Vegas, San Francisco, some of which are part of the Shangri-La Asia Group. Mr CHIU obtained his Bachelor of Science in Hotel Administration in 1966 from Cornell University and is a graduate of the Lausanne Hotel School.

Ms TEO was appointed as the Company Secretary of the Company in March 2008. Ms TEO holds an LL.B. (Honours) Degree from the National University of Singapore and an LL.M. Degree in Laws from the University of London. She is a Solicitor qualified in Hong Kong and has been admitted as a Solicitor of the Supreme Court of England and Wales and as an Advocate & Solicitor of the Supreme Court of Singapore. Ms TEO is the cousin of Mr KUOK Khoon Ean, Mr KUOK Khoon Loong, Edward and Madam KUOK Oon Kwong.

Michael Wing-Nin CHIUAged 64, Independent Non-Executive Director

Mr HO was appointed as an Alternate Director to Mr HO Kian Guan in November 2004. He is a Director and Deputy Chairman of Keck Seng Investments (Hong Kong) Limited (listed on the HKSE) and Managing Director of Keck Seng (Malaysia) Berhad (listed on the BMSB). He is an Alternate Director of Parkway Holdings Limited (listed on the SGX-ST). He is the brother of Mr HO Kian Guan.

Company Secretary

HO Kian HockAged 61, Alternate Director

TEO Ching LeunAged 48, Company Secretary

| Senior Management10

Senior Management

Chief Operating OfficerMr Greg DOGAN, aged 44, was previously vice president and general manager of Makati Shangri-La,Manila following his post as regional vice president –China, in Shanghai. He was formerly area manager and general manager based at Shangri-La Hotel, Dalian, China. He has also held senior management posts at Shangri-La Hotel, Jakarta and Shangri-La’s Mactan Resort and Spa, Cebu. Prior to joining Shangri-La Asia Group in 1997, Mr DOGAN held managerial positions at luxury hotels in Spain, Dubai and China.

Chief Information OfficerMr Anand RAO, aged 50. Mr RAO has been chief information officer at Shangri-La Hotels and Resorts since 1989, except for a few years as chief executive officer of Kerry Technology Limited, the Kuok Group’s IT investment arm. Before joining Shangri-La, Mr RAO was a partner of a firm of chartered accountants in Bombay. He is a graduate from the Indian Institute of Technology, Mumbai and holds an MBA from the Indian Institute of Management, Ahmedabad. He is also a fellow member of the Institute of Chartered Accountants of India.

Group Director of Human ResourcesMs June NG, aged 52. Prior to joining Shangri-La, Ms NG was the head of human resources, Greater China and group head of talent management of DBS Bank. Previously, she held senior human resources management positions with various organizations including Standard Chartered Bank, CitiBank and Bayer, in the United Kingdom, Canada and her native Hong Kong. She holds two master degrees, one in business administration and the other in professional development.

Senior Management | 11

Group Director of Sales and MarketingMr Kent ZHU, aged 45, was formerly vice president – China as well as vice president – sales and marketing for China hotels. He began his career with the Group as deputy director of sales at China World Hotel and Traders Hotel, Beijing, in 1989, and served as Director of Sales and Marketing in several other leading hotels in the Group.

Group Director of ProjectsMr NG Si Fong, Alan, aged 55, joined Shangri-La Hotels and Resorts in 2002, and prior that Mr NG was project director of Kerry Properties (H.K.) Limited and a director of Kerry Project Management (H.K.) Limited. He is a chartered engineer with more than 25 years of experience.

Group Financial ControllerMr S.S. Mohan RAM, aged 58. Mr RAM was previously vice president – finance, following a position as regional financial controller for Shangri-La hotels in Singapore, Thailand, Indonesia and Myanmar. Mr RAM joined Shangri-La in 1989 as director of finance for China World Hotel, Traders Hotel and Trade Centre Restaurants, Beijing. Previously, he spent 15 years with a leading luxury hotel group in India, culminating in a position as controller of accounts, northern India region. He is a fellow member of the Institute of Chartered Accountants of India.

Management Discussion & Analysis

| Management Discussion & Analysis12

1. Performance ReviewThe Group’s main business comprises the ownership, operation and management of hotels. It also has ownership interests in investment properties i.e. office properties, service apartments and retail spaces. The Group also manages hotels for third party owners. Hotel operations continued to be the Group’s main source of revenue and operating profits. The luxury hotel market in Asia, in particular Mainland China, continues to be the Group’s main focus.

As at 31 December 2008, the Group has equity interests in 45 operating hotels (2007: 44) comprising 23,309 available guest rooms (2007: 22,292). This includes the Portman Ritz-Carlton Hotel, Shanghai (the “Portman”) and the Hotel JEN, Hong Kong (the “Hotel JEN”) which were not managed by the Group.

Performance of the Group’s hotels in the first quarter of 2008 started off strong. However beginning in the second quarter, the effect of the economic slow down in the United States of America (USA), the increase in airfares caused by the high fuel prices, the natural disasters that struck Mainland China and the tightening of visa regulations for visits to Mainland China in the run-up to the Beijing Olympics, resulted in a drop in occupancies at the Group’s hotels in Mainland China, Hong Kong, the Philippines and Singapore. The last quarter witnessed unprecedented volatility in the global financial markets. With the USA and European economies in recession and increasing global unemployment, both luxury leisure travel and business travel have declined substantially.

The operating performance of the Group’s investment properties showed slight improvement across the board, save for the serviced apartments in Kuala Lumpur and Bangkok.

(a) Revenues

Hotel OperationOn an unconsolidated basis, room revenues accounted for over 54% while food and beverage revenues accounted for over 39% of the total revenues from hotel operation. Room revenues at US$935.2 million represented an 8% year on year growth while food and beverage revenues at US$677.3 million represented a 12% year on year growth.

Room revenues increased due to the marginal growth in room yields (Revenue Per Available Room or RevPAR) of 1% and the effect of full year operation of hotel rooms of new hotels/extensions which opened for business in the year 2007.

Management Discussion & Analysis | 13

Key performance indicators of the Group on an unconsolidated basis are:

Geographical analysis

2008Weighted Average

2007Weighted Average

Country OccupancyTransient

Room Rate RevPAR OccupancyTransient

Room Rate RevPAR(%) (US$) (US$) (%) (US$) (US$)

The People’s Republic of China Hong Kong 72 292 206 77 280 211 Mainland China 57 161 91 67 140 92Singapore 76 227 174 83 186 152The Philippines 75 163 119 81 147 117Malaysia 65 125 88 72 110 77Thailand 49 168 79 74 153 108Fiji 69 155 104 69 135 92Indonesia 64 117 66 62 114 62Myanmar 56 51 28 50 40 21

Subsidiaries and Associates 62 171 106 71 152 105

Note: The RevPAR of hotels under renovation has been computed by excluding the number of rooms under renovation.



Comments on performance by geography:

The People’s Republic of ChinaHong KongDespite a 6% increase in weighted average room rates, the two Shangri-La hotels recorded a 2% decrease in weighted average RevPAR as weighted average occupancy decreased by 5 percentage points.

Mainland ChinaIn the aggregate, the hotels recorded a marginal decrease in RevPAR of 1%. Weighted average occupancy was affected by the adverse weather conditions in Southern China in the first quarter of 2008, the effect of the earthquake in Sichuan in May and the reduction in foreign visitor arrivals in the second quarter. While some rebound in occupancies was envisaged after the Olympics, overall demand softened due to the adverse global economic environment in the last quarter of the year. In addition, occupancy was also affected by rooms renovation at the Pudong Shangri-La, Shanghai and the increased number of rooms at the Shangri-La Hotel, Qingdao with the opening on 12 March 2008 of additional 196 guest rooms and 13 serviced apartments.

Most hotels recorded an increase in room rates, both due to a general increase in rates quoted in Renminbi and the effect of the appreciation of the currency against the US dollar. Combined revenues increased by 16% during the year.

The Futian Shangri-La, Shenzhen which comprises 548 guest rooms and 53 serviced apartments opened for business on 23 October 2008.

SingaporeWeighted average room rates increased by 22% as room rates quoted in Singapore dollars continued to improve due to buoyant market conditions, and the effect of the currency appreciation against the US dollar, in the first three quarters of 2008. Combined revenues increased by 13%.

The PhilippinesThe performance of the Group’s hotels continued to improve in line with the overall economic environment of the country.

MalaysiaOverall, the Group’s hotels and resorts benefited from a strong improvement in demand during the year. Weighted average occupancy decreased by 7 percentage points mainly due to the renovation programmes at the Shangri-La Hotel, Kuala Lumpur which commenced in April 2008 and the effect of the 90-room extension of Shangri-La’s Rasa Ria Resort, Kota Kinabalu (the “Rasa Ria Resort”) which opened in late December 2007. However, the RevPAR of the Rasa Ria Resort which increased by 15%, benefited from the contribution from the newly commissioned rooms. The RevPAR of Shangri-La’s Rasa Sayang Resort & Spa, Penang increased by 23% with increased leisure arrivals.

ThailandThe performance of the Shangri-La Hotel, Bangkok was affected by the renovations of most outlets and function rooms and the negative effects from the political turmoil in the last quarter of the year. Occupancy and RevPAR of the hotel decreased by 15 percentage point and 10%, respectively. Overall weighted average RevPAR for the Group’s hotels decreased by 28%, also affected by the newly opened Shangri-La Hotel, Chiang Mai.


Fiji, Indonesia and MyanmarPerformance of the Group’s hotels in these countries continued to record year on year improvement supported by increases in their room rates and RevPAR.

Hotel ManagementExcept for the Hotel JEN and the Portman, all the other 43 hotels in which the Group has equity interests are managed by the Group’s management arm, SLIM International Limited and its subsidiaries (“SLIM”). In addition, SLIM also had hotel management agreements in respect of 15 operating hotels (5,477 available rooms) owned by third parties as at 31 December 2008. Overall weighted average RevPAR and room rates of these 15 hotels increased by 11% and 15%, respectively. SLIM recorded a 12% increase in revenues on consolidation.

For managed hotels, the 419-room Traders Upper East Hotel, Beijing in Mainland China and the 336-room Shangri-La’s Far Eastern Plaza Hotel, Tainan in Taiwan opened for business in 2008. The 119-room Shangri-La Hotel, Vancouver in Canada opened for business on 24 January 2009. Development work of 2 hotels in Macau has suspended temporarily. SLIM has also terminated the management contracts for hotel projects in Urumqi, Mainland China and Chicago due to the suspension of works on these projects by the developers. In March 2009, SLIM signed a new hotel management agreement for the 301-room Traders Hotel, Abu Dhabi which will be opened for business in mid 2009.

Property RentalsMost of the properties recorded double digit increment in yields for their retail and office space save for the retail space in the Shanghai Kerry Centre and the retail and office space in the Chao Phya Tower in Bangkok, which recorded increases of 4%, 4% and 9%, respectively. Notably, the office tower at the Shangri-La Centre, Chengdu in Mainland China which opened for business in August 2007, recorded an increase in yields of 433%.

In terms of serviced apartments, save for the yields in the Shanghai Centre (increased by 6%), Changchun (remained flat), Kuala Lumpur (decreased by 4%) and Bangkok (decreased by 27%), all the properties recorded double digit increase in yields.



Sales analysis

2008 2007 ChangeSubsidiaries US$ million US$ million %

Hotel Operations Hong Kong 233.0 230.3 1% Mainland China 506.3 416.8 21% Singapore 176.6 156.6 13% The Philippines 153.5 149.1 3% Malaysia, Thailand, Fiji and Yangon 211.3 206.3 2%

1,280.7 1,159.1 10%

Hotel Management 92.4 80.7 15%

Properties Mainland China, Singapore, Malaysia and Thailand 36.3 27.7 31%

Less: Elimination (56.1) (48.3)

Total sales for subsidiaries 1,353.3 1,219.2 11%

(b) Consolidated ProfitsAt the subsidiary level, the gross profit margin of the hotels was marginally lower by less than 1 percentage point as a result of increase in food costs and labour costs, while the gross profit margin for the properties increased by around 1 percentage point. As a result of the increase in revenues of the hotels and properties, EBITDA (earnings before interest, tax, depreciation, amortization and non-operating items) increased by 11%. EBITDA is net of the pre-opening expenses of US$35.6 million (2007: US$22.1 million).

In terms of the associates, share of profit after tax and before non-operating items increased by 36%, mainly contributed by the improved results of the investment properties. In 2008, net charge for share of non-operating items is US$4 million. There was a net credit of US$39.6 million for non-operating items in 2007 which included the share of associates’ taxation for the reversal of provision for deferred tax liabilities of US$30.3 million due to a reduction of income tax rate in Mainland China from 33% to 25% effective 1 January 2008.

Consolidated profits of the Group for the year were favourably affected by the increase in exchange gains of US$50.6 million due to appreciation of the Renminbi and other Asian currencies against the US dollar in the first three quarters. Interest expenses after capitalization of all subsidiaries decreased by US$14.2 million, following a reduction in bank borrowings in the first half of 2008 consequent to the rights issue in September 2007 and the reduction in borrowing rates. Income tax expenses for subsidiaries in 2007 included a credit of US$9.9 million for the reversal of provision for deferred tax liabilities due to a reduction of income tax rate in Mainland China.


EBITDA of the Group and Reconciliation to Operating Profit

For the year ended 31 December 2008 2007 ChangeUS$ million US$ million %

Hotel Operations Hong Kong 97.0 95.6 1% Mainland China 198.7 167.9 18% Singapore 67.7 59.1 15% The Philippines 44.8 44.2 1% Malaysia, Thailand, Fiji and Yangon 70.8 74.6 (5%)

479.0 441.4 9%

Hotel Management 30.4 17.8 71%

Properties Mainland China, Singapore, Malaysia and Thailand 20.7 11.7 77%

Less: Corporate expenses (41.3) (28.8) (43%)

EBITDA 488.8 442.1 11%

Less:Depreciation (166.8) (134.9)Amortization of leasehold land and land use rights (11.2) (8.3)Amortization of trademark and website development (1.2) (0.9)Net foreign exchange transaction gains (50.6) (32.8)Expenses on share options granted (0.5) (2.5)

For the year ended 31 December 2008 2007 ChangeUS$ million US$ million %

Losses on disposal of property, plant and equipment and partial replacement of investment properties (2.5) (2.4)Discarding of property, plant and equipment due to renovation of hotels (9.9) (0.7)Add: Other (losses)/gainsNet fair value (losses)/gains on investment properties (0.9) 59.1(Losses)/gains on financial assets held for trading (33.4) 21.1Fair value losses on interest-rate swap contracts (61.1) (10.4)Gains on disposal of partial interests in subsidiaries – 9.1Interest income 7.7 10.3Dividend income 0.9 0.9Tax refund on reinvestment of dividend from a subsidiary and an associate – 3.2Waiver of debt by a non-controlling shareholder – 4.7Fair value gains on loans from non-controlling shareholders 1.3 10.7Penalty on relinquishment of rights to acquire project sites (0.6) –Other non-operating gains 3.2 5.0

Operating profit before finance costs 163.2 373.3



2. Corporate Debt and Financial ConditionsDuring the year, the Group executed new 5-year term unsecured bank loan agreements aggregating to equivalent US$354.9 million, a 5.5-year term unsecured bank loan agreement of equivalent US$29 million and a 9-year term unsecured bank loan agreement of equivalent US$13.6 million. A subsidiary has also contracted a 6-month term working capital loan agreement of equivalent US$3.7 million.

The Group has also extended a matured HK$300 million (approximately US$38.7 million) unsecured bilateral bank loan agreement for another year.

The Group has not encountered any difficulty when drawing down loans from committed banking facilities. None of the banking facilities were cancelled by the banks during or after the close of the financial year.

The net borrowings (total of bank loans and overdrafts less cash and bank balances) to total equity ratio increased from 20.5% as at 31 December 2007 to 34.5% as at 31 December 2008.

The Group has satisfactorily complied with all covenants under its borrowing agreements.

The analysis of borrowings outstanding as at 31 December 2008 is as follows:

Maturities of Borrowings Contracted as at 31 December 2008

(US$ million)Within 1 year

In the 2nd year

Repayment In the 3rd to

5th yearAfter

5 years Total

BorrowingsCorporate bank loans – 539.2 551.3 – 1,090.5Project bank loans and overdrafts 39.0 78.4 659.4 61.0 837.8

Total 39.0 617.6 1,210.7 61.0 1,928.3Undrawn but committed facilitiesBank loans and overdrafts 175.7 231.2 589.1 0.1 996.1

In February 2009, a non-wholly owned subsidiary in Maldives executed a 5-year US$50 million project loan agreement with International Finance Corporation. A subsidiary in Mainland China executed a new 5-year US$40 million unsecured bank loan agreement in the same month.

Except for the bank loans of a non-wholly owned subsidiary of Renminbi 177 million and HK$200 million (approximately equivalent total US$51.7 million) maturing in 2010 which are secured by the rights and benefits of the insurance policies on the hotel property owned by that subsidiary, all other loans are unsecured.

The currency-mix of the borrowings and cash and bank balances as at 31 December 2008 is as follows:

(US$ million) BorrowingsCash and

Bank Balances

In Hong Kong dollars 988.6 16.9In US dollars 512.5 148.4In Renminbi 165.6 193.0In Singapore dollars – 28.0In Philippine Pesos 59.4 13.0In Malaysian Ringgit 44.8 6.6In Thai Baht 0.4 19.2In Fiji dollars – 6.2In Euros 112.7 16.2In Japanese Yen 44.3 6.3In Maldive Rufiyaa – 8.3In other currencies – 0.9

1,928.3 463.0

Excepting the loans in Renminbi which carry interest at rates specified by The People’s Bank of China from time to time, all the borrowings are at floating interest rates.


Details of the financial guarantees and contingent liabilities of the Company and the Group as at 31 December 2008 are provided in Note 36 to the Consolidated Financial Statements.

3. Treasury PoliciesTreasury policies aimed at minimizing interest and currency risk have been consistently followed by the Group:

(a) Minimize Interest RiskIntragroup financing between subsidiaries in Mainland China by way of entrusted loan agreements through local banks amounted to Renminbi 174 million (approximately US$25 million) as at 31 December 2008.

The Group has also endeavoured to hedge its medium term interest rate risk by entering into HIBOR and LIBOR interest-rate swap contracts. As at 31 December 2008, the Group had outstanding contracts for a total value of HK$4,760 million (approximately US$614.2 million) at fixed interest rates ranging between 4.28% and 4.63% per annum and US$100 million at a fixed interest rate of 4.70% per annum. The interest cover continues through January 2014. Taking into account these interest-rate swap contracts and the Renminbi loans, the Group has fixed its interest liability on 46% of its loans outstanding.

(b) Minimize Currency RiskThere is a natural economic hedge to the extent that all the Group’s business units in Hong Kong, Mainland China, the Philippines, Singapore and Malaysia and Thailand derive their revenues (and most of the expenses associated therewith) in local currencies. The Group’s hotels are quoting room tariffs in the local currency in view of the general

appreciation of the Asian currencies against US dollar. It is the Group’s endeavour, wherever and to the extent possible, to quote tariffs in the stronger currency and maintain bank balances in that currency, if legally permitted. Also, to the extent legally permitted, the Group’s subsidiaries in Mainland China contracted for new bank loans in US dollars.

The Group has not felt it appropriate to substantially hedge against currency risks through forward exchange contracts upon consideration of the currency risks involved and the cost of obtaining such cover.

4. Investment Properties ValuationsInvestment properties continue to be stated at fair value. All changes in the fair value of investment properties from one balance sheet date to the next will be reported in the income statement. Investment properties are stated at professional valuations carried out by the following independent firms of professional valuers as at 31 December 2008:

CB Richard Ellis Limited,DTZ Debenham Tie Leung Limitedand Chesterton Petty Limited

: For properties in Mainland China

Colliers International Consultancy & Valuation (Singapore) Pte Ltd,and Vigers Appraisal & Consulting Limited

: For properties in Singapore

W.M. Malik & Kamaruzaman : For properties in Malaysia



5. Financial Assets Held for Trading – Trading SecuritiesThe portfolio of these securities was reduced substantially to US$13.3 million as at 31 December 2008 after reclassification of 10,867,055 ordinary shares in the Company as treasury shares during the year.

These ordinary shares in the Company are held by a wholly owned subsidiary of Shangri-La Hotel Public Company Limited, one of the principal subsidiaries of the Group, before the Company acquired a controlling interest in it in late 1999.

The market value of these ordinary shares in the Company as at 30 June 2008 was written off against the retained earnings of the Group.

In 2008, the Group charged a total unrealized losses on financial assets held for trading of US$33.4 million before non-controlling interests for the year (US$31.0 million after non-controlling interests) to the income statement.

6. Development Programmes(a) Existing Programmes

In Mainland China, the extension to the Shangri-La Hotel, Qingdao and the Futian Shangri-La, Shenzhen opened for business on 12 March 2008 and 23 October 2008, respectively. Both hotels are wholly owned subsidiaries of the Company. On 16 January 2009, the 409-room Shangri-La Hotel, Wenzhou (a 75% owned hotel) opened for business.

The 202-room Shangri-La Hotel, Tokyo, a hotel under operating lease, opened for business on 2 March 2009, while the 219-room Shangri-La’s Boracay Resort & Spa, Philippines also opened on the same day.

Development work on the following projects is on-going:

Group’s interest as at 31 December

2008Hotel

RoomsServiced

ApartmentsProjected Opening

Hotels in Mainland ChinaShangri-La Hotel, Ningbo 95% 564 60 Mid 2009Shangri-La Hotel, Guilin 100% 430 – Late 2009Shangri-La Hotel, Manzhouli 100% 201 16 Late 2009

Hotels in other countriesShangri-La’s Villingili Resort & Spa, Maldives 70% 142 – Mid 2009Shangri-La Hotel, Paris, France 100% 108 – Early 2010Shangri-La’s Mactan Resort & Spa, Cebu – extension 100% 112 – Late 2010Traders Hotel, Malé, Maldives 100% 205 – Late 2011Shangri-La Hotel, Vienna, Austria Operating lease 202 – Mid 2010

Other projects and composite developmentsOffice Tower, Ulaanbaatar, Republic of Mongolia 51% N/A N/A Mid 2009Office Tower, Qingdao 100% N/A 130 Mid 2009China World Trade Center Phase III – Grand Tower (including a deluxe hotel), Beijing 40.07% 278 – Mid 2009Pudong Kerry Centre (with Shangri-La’s Pudong Kerry Centre Hotel), Shanghai 23.20% 574 141 End 2010Tianjin Kerry Centre (with Shangri-La Hotel, Tianjin) 20% 450 18 2012Jing An Kerry Centre (with Jing An Shangri-La), Shanghai 49% 400 – 2012


In July 2008, the Group completed the acquisition of the entire equity interest of a local company in Paris which owns the building adjacent to the site of the Shangri-La Hotel, Paris, at a net consideration of Euro 20.9 million (approximately US$31 million). The building will be refurbished as an extension of the hotel currently under development.

At the special general meeting held on 17 December 2008, the independent shareholders of the Company approved the discloseable and connected transactions in relation to the entering into the Supplemental Agreement relating to the joint acquisition, ownership and development of the land sites in Jingan District, Shanghai, pursuant to which the Company (holding 49% equity interest) and Kerry Properties Limited (“KPL”) (holding 51% equity interest) agreed that the maximum total commitment shall be increased from US$700 million to Renminbi 7,600 million (approximately US$1,111.9 million at the exchange rate as at 31 December 2008). The rise in the development costs of the project was mainly attributable to changes in the development plans, increase in construction costs and inflation, increase in land costs and interest costs.

The Group’s wholly owned subsidiaries have acquired land use rights in certain provincial cities in Mainland China including Sanya and Qinhuangdao and Ulaanbaatar in the Republic of Mongolia for hotel development and the Group is now reviewing the development scale and roll-out schedule.

The Group has a 25.9% interest in the project companies which own a piece of land in the Midtown Manhattan, New York. The joint venture parties are reviewing the investment of this project.

The Group has also carried out design and concept planning for a 195-room Shangri-La Hotel at London Bridge Tower, London in the United Kingdom. This hotel under operating lease is scheduled to open for business in 2012.

(b) New ProjectsDuring the year, the Group entered into certain connected transactions for new development projects in the following cities:

– A composite development in Nanchang City, Mainland China.

– A composite development in the Bonifacio Global City located at Taguig, Metro Manila, The Philippines.

– A composite development in Tangshan City, Mainland China.

– A composite development in Nanjing City, Mainland China.

Details of these transactions are provided in items 1, 2, 5 and 6 under the section headed “Connected Transactions” of the Report of the Directors.

The estimated incremental funding required directly by the subsidiaries and the Group’s share of the funding obligations of its associates for all the existing and new projects (including item 7 below relating to the acquisition and the restructuring of certain property interests in the Philippines) and other renovations involving fund commitments is currently estimated at US$2,159 million as of 31 December 2008 which included US$42.4 million guarantees to be executed by the Group in favour of bank loans granted to associates.

On 16 March 2009, the Group entered into a novation deed pursuant to which the rights, title and interests of APL under and in the master joint venture agreement for the Nanjing development project (including but not limited to all APL Group’s 15% rights, title and interests in and under part of the land deposit payment of Renminbi 4.5 million already contributed by APL Group for land use rights of a piece of land) will be transferred and assigned by novation to the Group at a cash consideration of approximately HK$5.2 million (approximately US$0.7 million). The Group’s interest in the master joint venture agreement will be increased to 55% following the completion of the novation and



the Group’s 55% share of the maximum total investment in the project will be increased to Renminbi 825 million (approximately US$121 million). The transactions are subject to the Company’s independent shareholders’ approval.

7. Disposals and AcquisitionsOn 18 January 2008, the non-controlling shareholder of the Company’s subsidiary Shangri-La Mongolia Limited (“SML”) exercised its option under the shareholders’ agreement to acquire from the Group an additional 9% equity interest and proportionate shareholder’s loans in SML which owns the office tower development project in Ulaanbaatar, the Republic of Mongolia through its wholly owned subsidiary. The total consideration for the transfer was approximately US$1,935,000, yielding the Group a nominal gain on this transaction. The Group holds 51% equity interest in SML after this dilution.

On 30 May 2008, the Group acquired an additional 23% shareholding interest, together with proportionate shareholder’s loan, in Shangri-La Hotels (Shenzhen) Limited (“Shangri-La Shenzhen”), an indirect 57% owned subsidiary, from a substantial shareholder of this indirect owned subsidiary at a total consideration of approximately Renminbi 135.1 million (approximately US$20 million). Shangri-La Shenzhen is the registered owner of 90% interest in a joint venture company established in the PRC which owns and operates the Shangri-La Hotel, Shenzhen. Following completion of the acquisition, the Group owns a 72% effective interest in the Shangri-La Hotel, Shenzhen. The amount of US$11,284,000 being the difference between the value of the 23% interest and the consideration was charged to the Group’s retained earnings.

On 2 January 2009, the Group entered into connected transactions in relation to the acquisition of the entire issued share capital of certain Philippines property holding companies and related loans; and proposed to enter into other agreements to dispose of approximately 6.05% equity interest in Mactan Shangri-La Hotel & Resort, Inc. (“MSH”) (a wholly owned subsidiary of the Company which owns the Shangri-La’s Mactan

Resort & Spa, Cebu (“Shangri-La Mactan”)). Details of these transactions are provided in Note 42(b) to the Consolidated Financial Statements. As at the date of this report, these transactions for the dilution of interest in MSH have not been wholly completed. In accordance with the accounting standard, the difference between the consideration received for the dilution of interest in MSH and the corresponding share of the net asset value in MSH will be recorded as movement of equity in the 2009 consolidated financial statements.

8. Management ContractsAs at the date of this report, the Group has 16 management agreements in respect of operating hotels owned by third parties and the Group has agreements on hand for development of 14 new hotels. The development projects are located in Doha (Qatar), Toronto, Las Vegas, Miami, Kuwait, Seychelles, Bangalore, Mumbai, Macau and Abu Dhabi.

9. ProspectsWith the melt down of the financial market in the USA, the financial contagion which engulfed the global economies during the last quarter of 2008 continued through early 2009. This period witnessed unprecedented volatility in the financial markets of most countries. With recession in the USA, Europe and Japan and the uncertainty created by the political situation in Thailand, it is envisaged that the sentiment triggered by these developments will dampen both business and leisure travel and spending through the first half of 2009 at a minimum. In preparing for a difficult and weakening market environment, the Group’s hotels have initiated various cost containment measures without compromising on standards and level of service. The Group believes that maintenance of product and service quality in these difficult times, is key to the long term success of the business.

10. Corporate Social ResponsibilityThrough Corporate Social Responsibility (CSR), the Group remains committed to operating in an economically, socially and environmentally sustainable manner whilst balancing the interests of diverse stakeholders. In 2008, hotels continued to deliver on the Group’s commitment based on the five areas of CSR priorities.


The EnvironmentEfficient resource management remains a priority across the Group. Hotels have been working on energy consumption reduction of 12% from 2006 levels. Water management systems such as graywater recycling have been put in place along with a campaign to reduce landfill-bound waste.

Environment Management Systems are steered by a cross-section of the staff in every property. By the end of 2008, 38 managed hotels and resorts had the ISO 14001 certification. Soon, the group will work towards overall reduction of carbon dioxide emissions.

Beyond biodiversity conservation, the Group aims to restore habitats and promote environmental education. At the Shangri-La’s Mactan Resort and Spa, Cebu, the marine protected area spans five hectares from the beachfront with a restoration of over 50 species of fish, clams and coral. At Shangri-La’s Barr Al Jissah Resort and Spa in the Sultanate of Oman, a dedicated turtle ranger has provided turtle hatcheries for the rare green turtle and the hawksbill turtle that nest along Oman’s coastline.

Stakeholder EngagementJobs creation becomes a key objective in every locality that a Shangri-La Group hotel opens in. This CSR strategy, among others, is likewise encouraged by the Group’s business partners. In some hotels, key corporate accounts and client groups already attend CSR seminars and are offered green meeting packages.

While Care for Children (CFC) remains the biggest partner in Mainland China for overall child welfare, other properties leverage partnerships with NGOs in order to best address local social needs. Care for the elderly, environmental conservation, health & sanitation and child development are some of the many causes that various hotels support.

Supply ChainThe Group seeks to maintain the highest of standards in hygiene, safety, labour and environmental practice amongst its suppliers. More products are sourced from the best practitioners in eco-friendly products such as biodegradable plastic, non-MSG and least GMO-food items. More non profit organizations, community trade or organic growers for food products are also made business partners.

Health and SafetyThe Group is committed to protecting the health and safety of its customers, employees, suppliers and the public by providing a safe and healthy environment. Each property has a dedicated Fire/Life/Safety Manager thoroughly trained for emergency and unpredictable situations.

The Group has seen the growing interest in and value for OHSAS 18001: a standard and planning tool for hazard identification, risk assessment and control altogether seeking to minimize accidents and casualties to employees given their working environment. Shangri-La Hotel, Kuala Lumpur and Shangri-La Hotel, Singapore lead the Group in OHSAS certification. In due course, an efficient integrated management system, along with the ISO 9001, 14001 and HACCP will be implemented across the Group.

As a leader in food safety management system, 19 more properties were certified under the Hazard Analysis and Critical Control Point System (HACCP) in 2008 bringing the total to 45. In 2009, all the training programmes will be further cascaded to business partners. Waste Management and food safety seminars are to be conducted in local organizations, even with tour operators. As well, some of the properties have commenced working with consultants towards making the hotels a friendlier destination for Persons With Disabilities (PWD) and children.

EmployeesThe Group regards its people as its greatest asset, and remains committed to providing a safe and healthy working environment. The Group maintains the highest standards for its employees, who are its partners delivering the promise of true Asian hospitality.



As an industry leader and an employer of choice, the Group ensures that it remains committed to ensuring the welfare of its employees, offering competitive compensation packages and applicable minimum wage requirements in every country and region where it operates. It espouses equal gender rights, the ability to join employee organizations, freedom of expression and work-life balance programmes. From wellness/sports & recreation programmes to nutritious meals in the staff dining halls and volunteer opportunities, the staff can choose from a wide range of activities to engage in.

Going ForwardIn 2008, the Group accelerated its commitment to CSR by recognizing the need for better accountability and management of its programmes. The first Area CSR and Sustainability Manager was hired for the Philippine properties with this precise objective in mind. CSR Champions and committees have been set up in every single property, with various departments steering best practices across the five key strategic areas of Environment, Supply Chain, Health and Safety, Employees and Stakeholder Engagement. A training module on the importance of CSR as well as the localized impacts of climate change will be cascaded throughout the Group in order to inspire a personal lifestyle change along with company mandate and policy. This module has been completed in the Philippine hotels and will be cascaded to over 20 more hotels within 2009.

11. Human ResourcesAs of 31 December 2008, the Company and its subsidiaries had approximately 25,000 employees. The headcount of all the Group’s managed hotels and resorts totaled 37,000. Salaries and benefits, including provident fund, insurance and medical cover, housing and share option schemes were maintained at competitive levels. Bonuses were awarded based on individual performance as well as the financial performance of business units.

The Company has two share options scheme. Details of these two schemes are provided in the section headed “Share Options” of the Report of the Directors. The Group has not granted any new options in 2007 and 2008. The Group charged US$454,000 in its 2008 income statement for options granted in 2005 and 2006.

The Group’s total employee benefit expenses (excluding directors’ emoluments) amount to US$358,033,000 (2007: US$320,379,000).

The Board’s remuneration committee reviews matters relating to the compensation and the incentives proposed for senior management and executive directors.

The Group remains committed to developing its human capital. In 2008, seventy high potential employees were selected to the group’s core talent development programmes which provide both on the job and classroom learning over durations of twelve to eighteen months. Thirteen employees were certified in the Hospitality for Housekeeping Executive Programme (CHHE) offered by the American Hotel and Lodging Association. A three year agreement of understanding was signed with the Spanish Foreign Trade Institute (ICEX) in China and three of our chefs from China are currently undergoing a nine months culinary training in Spain. In addition, a number of corporate programmes were launched across the Group during the year including a self-paced leadership development programme targeting hotel general manager successors, and a new module “Delighting Customers” for all employees.

The Shangri-La Academy continues to accelerate and intensify employee training in keeping with the Group’s expansion. Since its opening in December 2004, it has trained more than 3,500 employees through its four core certificate programmes, its diploma programmes and its various management development programmes. In December 2008, the Academy fitted with state of the art facilities has moved to its new location at the Sun Yat-Sen University Campus in Zhuhai.

In 2008, the company received the American Society of Training and Development (ASTD) BEST award which recognizes those exceptional companies that create a culture of learning at all levels of the organization. This was the first time an Asian hotel company was conferred this award since its inception in 2003.


Corporate Governance Report | 25

The Company recognizes the importance of transparency in governance and accountability to shareholders. The Board of Directors (the “Board”) believes that shareholders can maximize their benefits from good corporate governance. Therefore, the Company continuously reviews its corporate governance framework to ensure alignment with generally acceptable practices and standards.

During the year under report, the Company has met the code provisions as set out in the Code on Corporate Governance Practices contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “HK Listing Rules”), except that the Company did not appoint a chief executive officer prior to 2 April 2008. On 2 April 2008, Mr KUOK Khoon Ean was appointed as the Chairman of the Board and having, among other things, the responsibilities as set out in the HK Listing Rules, and Mr KUOK Khoon Loong, Edward was appointed as the President and Chief Executive Officer of the Company.

The Board of DirectorsThe Board is accountable to the shareholders for leading the Group in a responsible and effective manner. The current Board comprises 5 Executive Directors, 4 Non-Executive Directors (one of whom is an Alternate Director) and 4 Independent Non-Executive Directors, whose biographical details and relationship between members of the Board are set out on pages 5 to 9. The Board has a majority of Non-Executive Directors, thereby improving management control and ensuring that the Board takes into account the interests of all shareholders.

The Board meets at least four times a year at quarterly intervals and meets more frequently as and when required. At the Board meetings, the Directors actively participate and hold informed discussions. The Board held four meetings in 2008 and meetings attended by each of the Directors during the year 2008 were as follows:

Name of DirectorMeetings attended/

eligible to attend

Executive DirectorsMr KUOK Khoon Ean (Chairman) (appointed as Director on 1 April 2008 and elected as Chairman of the Board on 2 April 2008)

3/3

Mr KUOK Khoon Loong, Edward (appointed as the President and Chief Executive Officer on 2 April 2008)

4/4

Mr LUI Man Shing 4/4Mr Giovanni ANGELINI 3/4Mr Madhu Rama Chandra RAO (appointed on 18 December 2008)

0/0

Mr NG Si Fong, Alan (retired on 23 May 2008) 1/1Non-Executive DirectorsMadam KUOK Oon Kwong 4/4Mr HO Kian Guan 4/4Mr Roberto V. ONGPIN 4/4Mr Alexander Reid HAMILTON* 4/4Mr WONG Kai Man, BBS, JP* 4/4Mr Timothy David DATTELS* 4/4Mr Michael Wing-Nin CHIU* 4/4Mr LEE Yong Sun (retired on 23 May 2008) 1/1

* Independent Non-Executive Directors

| Corporate Governance Report26


To facilitate the decision-making process, the Directors have unrestricted access to the management to make enquiries and obtain further information, when required. In addition, all Directors have unrestricted access to the advice and services of the Company Secretary to ensure that the Board procedures and all applicable rules and regulations are followed. The Board has adopted the procedures for the Directors to obtain independent professional advice at the Company’s expense.

Minutes of the Board meetings kept by the Company Secretary are sent to the Directors for record and are open for inspection by the Directors.

The Company has arranged appropriate insurance cover for the Directors.

The Board has appointed Board committees to oversee particular aspects of the Company’s affairs. Each Board committee is appointed with written terms of reference. Certain matters are reserved to the full Board for decision including matters relating to the following:

• constitutionandsharecapital• corporateobjectivesandstrategy• corporatepoliciesrelatingtosecuritiestransactionsbyDirectorsandsenior

management• interimandannualresults• significantinvestments• majorfinancings,borrowingsandguarantees• corporategovernanceandinternalcontrols• riskmanagement• majoracquisitionsanddisposals• materialcontracts• boardmembersandauditor• anyothersignificantmattersthatwillaffecttheoperationsoftheGroupas

a whole

The day-to-day running of the Company is delegated to the management, with divisional heads responsible for different aspects of the business.

Directors’ Appointment, Re-election and RemovalThe Company has not established a nomination committee. The Board as a whole is responsible for approving the appointment of its members and nominating them for election and re-election by the shareholders of the Company.

The Board has adopted the procedures for appointment of new Directors to ensure that the Board consists of members with the range of skills and qualities to meet its principal responsibilities in a way which ensures that the interests of shareholders are protected and promoted and the requirements of the HK Listing Rules are complied with. The procedures and criteria to select candidates are as follows:

1. The Company Secretary shall forthwith inform the Board as soon as the number of Directors (executive or non-executive) falls below the minimum required by the HK Listing Rules or the Company’s Bye-Laws or if there are unfilled positions in any Board committees required to be constituted by the HK Listing Rules.

2. The Board identifies the need for a new Director based on whether or not the Company has an appropriate number of Directors to allow for effective decision-making.


3. The Board identifies potential candidates who may fill the role. Potential candidates should:

a. complement the existing Board composition to ensure that there is an appropriate mix of Directors with different abilities and experiences;

b. have the required skills, knowledge and expertise to add value to the Board; and

c. be able to commit the necessary time to their position.

4. Suitable candidate(s) are appointed in accordance with the Company’s Bye-Laws and the HK Listing Rules. All Directors should be appointed subject to re-election and to the HK Listing Rules, the Company’s Bye-Laws and laws concerning removal of a Director.

All Non-Executive Directors are appointed for a specific term and are also subject to the retirement provision in accordance with the Company’s Bye-Laws. Under the Company’s Bye-Laws, every Director is subject to retirement no later than the third Annual General Meeting (“AGM”) after he/she was last elected or re-elected. Besides, one-third of the Directors shall retire from office at each AGM. The retiring Directors shall be eligible for re-election.

Independence of Independent Non-Executive DirectorsThe Board has received from each of the Independent Non-Executive Directors confirmation of his independence according to the guidelines set out in Rule 3.13 of the HK Listing Rules. The Board is of the view that all Independent Non-Executive Directors of the Company are independent and is grateful for the contribution and independent advice and guidance that they have been giving to the Board and for their participation in the Board committees.

Remuneration CommitteeA Remuneration Committee was set up on 17 October 1997 to make recommendations to the Board on the Company’s policy and structure for all remuneration of Directors and senior management and on the establishment of a formal and transparent procedure for developing policy on such remuneration. The Committee comprises three members including the Chairman and two Independent Non-Executive Directors. The current Committee members are Messrs KUOK Khoon Ean (who acts as chairman of the Committee), Alexander Reid HAMILTON and WONG Kai Man, BBS, JP. The Remuneration Committee met one time in 2008 and meeting attended by each of the members during the year 2008 was as follows:

Name of MemberMeeting attended/eligible to attend

Mr KUOK Khoon Ean (Chairman) (appointed as member and Chairman on 2 April 2008)

0/0

Mr Alexander Reid HAMILTON 1/1Mr WONG Kai Man, BBS, JP 1/1Mr KUOK Khoon Loong, Edward (ceased to be a member on 2 April 2008)

1/1

The Remuneration Committee assessed the performance of the Executive Directors in the context of the financial performance of the Group and its development strategy in the medium term. In approving the terms of remuneration of the Executive Directors, including the grant of share options, the Committee considered the financial results of the Group, its growth plans, the competitive environment in the hotel industry for obtaining competent management talent and the need to adequately reward outstanding performances.

The terms of reference of the Remuneration Committee are available in the Group’s corporate website (www.ir.shangri-la.com).



Directors’ RemunerationThe remuneration for the Executive Directors comprises salary, annual bonus, pensions, housing and annual leave fare for expatriate Executive Directors. Salaries are reviewed annually. Salary increases are made where the Remuneration Committee believes that adjustments are appropriate to reflect performance, contribution, increased responsibilities and/or by reference to market/sector trends. In addition to salary, Executive Directors and employees of the Company and its subsidiaries are eligible to receive a discretionary bonus taking into consideration factors such as market conditions as well as corporate and individual performances. In order to attract, retain and motivate executives and key employees serving any member of the Group or other persons contributing to the Group, the Company has adopted share option schemes. Such incentive schemes enable the eligible persons to obtain an ownership interest in the Company and thus will motivate them to optimize their contributions to the Group.

The Directors’ emoluments paid or payable to the Directors during the year are set out on an individual and named basis, in Note 28 to the consolidated financial statements of this Annual Report and details of the share option schemes are set out in the Report of the Directors.

Audit CommitteeThe Company set up an Audit Committee on 25 August 1998. The Committee comprises three Non-Executive Directors, two of them being independent. The current Committee members are Messrs Alexander Reid HAMILTON (who acts as chairman of the Committee), HO Kian Guan and WONG Kai Man, BBS, JP. The Committee members have professional qualifications and experience in financial matters that enable the Committee to exercise its powers effectively and provide the Board with independent views and recommendations in relation to financial matters.

The main duties of the Audit Committee include the following:

(i) reviewing the interim and annual financial statements before they are submitted to the Board for approval;

(ii) making recommendations to the Board on, the appointment, re-appointment and removal of the external auditor, and approving the remuneration and terms of engagement of the external auditor, and any questions of resignation or dismissal of that auditor;

(iii) reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit process in accordance with applicable standards;

(iv) reviewing and monitoring the integrity of the interim and annual financial statements, reports of the Company, and reviewing significant financial reporting judgments contained in them, before submission to the Board;

(v) reviewing the Company’s financial controls, internal control and risk management systems;

(vi) reviewing the Group’s financial and accounting policies and practices;

(vii) reviewing the internal audit programme, ensuring co-ordination between the internal and external auditors, and reviewing and monitoring the effectiveness of the internal audit function.


The Audit Committee met four times in 2008 and meetings attended by each of the members during the year 2008 were as follows:

Name of MemberMeetings attended/

eligible to attend

Mr Alexander Reid HAMILTON 4/4Mr HO Kian Guan 4/4Mr WONG Kai Man, BBS, JP 3/4

Special meetings may be convened at the discretion of the chairman of the Committee to review significant control or financial issues.

The Audit Committee focused on the review of the Group’s financial controls and in particular the conduct of the internal audit at various operational units in the Group. They recommended the appointment and remuneration payable to the Company’s external auditor and satisfied themselves on the external auditor’s independence and objectivity. They also reviewed the interim and annual financial statements before these were submitted to the Board for approval and in the context of the new accounting and financial reporting standards issued by the Hong Kong Institute of Certified Public Accountants, they reviewed the compliance of these new standards by the Group.

In addition, the Committee members reviewed the reports issued by the internal audit team and discussed the risk and internal control of the Group.

The terms of reference of the Audit Committee are available at the Group’s corporate website.

Financial ReportingThe Directors acknowledge their responsibility for the preparation of the financial statements of the Group. In preparing the financial statements, the generally accepted accounting standards in Hong Kong have been adopted, appropriate accounting policies have been used and applied consistently, and reasonable and prudent judgments and estimates have been made.

The Board is not aware of any material uncertainties relating to events or conditions which may cast significant doubt over the Group’s ability to continue as a going concern. Accordingly, the Board has continued to adopt the going concern basis in preparing the financial statements.

The statement of the auditor of the Company about its reporting responsibilities on the financial statements of the Group is set out in the Independent Auditor’s Report on page 61.

Internal ControlThe Board has overall responsibility for maintaining sound and effective internal control systems in the Group. Internal control policies and procedures are designed to identify and manage the risks that the Group may be exposed to, thereby providing reasonable assurance regarding the achievement of corporate objectives. Internal financial systems also allow the Board to monitor the Group’s overall financial position, to protect the Group’s assets and to mitigate against material financial misstatement or loss. Through the Audit Committee of the Company, the Board has conducted reviews of the effectiveness of the system of internal control of the Company and its subsidiaries. The reviews cover all material controls, including financial, operational and compliance controls and risk management functions.



Internal AuditThe Board also monitors its internal financial control systems through management reviews and a programme of internal audits. The internal audit team reviews the major operational and financial systems of the Group on a continuing basis and aims to cover all major operations within every division on a rotational basis. The scope of its review and the audit programme is determined and approved by the Audit Committee at the beginning of each financial year in conjunction with the external auditors. The internal audit function reports directly to the Audit Committee and submits regular reports for its review in accordance with the approved programme.

External AuditorsThe Company’s external auditor is PricewaterhouseCoopers, Hong Kong.

During the year, PricewaterhouseCoopers, Hong Kong and its other member firms provided the following audit and non-audit services to the Group:

Services Fees chargedUS$’000

Audit services (including interim review) 622Non-audit services(a) Tax services 143(b) Other advisory services 105

Total fees for audit services provided by other external auditors to the subsidiaries of the Group were approximately US$446,000.

PricewaterhouseCoopers, Hong Kong will retire and offer themselves for re-appointment at the AGM of the Company to be held in May 2009.

Investor RelationsThe Board and senior management recognize their responsibility to look after the interests of the shareholders of the Company.

With a view to developing and maintaining continuing good relations with the Group’s shareholders and investors, various communication channels have been established.

The Company reports on its financial and operating performance to shareholders through interim and annual reports. At the AGM, shareholders can raise any questions relating to the performance and future direction of the Company with the Directors.

In addition, press conferences and analysts briefings are held at least twice a year subsequent to the interim and final results announcements at which appropriate senior management or Executive Directors are available to answer queries on the Group. Shareholders and investors may visit our website for up-to-date financial and other information about the Group and its activities.

As at 31 December 2008 and based on information that is publicly available to the Directors, there is a sufficient public float of the Company’s shares as required by the HK Listing Rules.


Securities Transactions by DirectorsThe Board has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the HK Listing Rules as the Code for Securities Transactions by Directors of the Company (the “Directors’ Securities Dealing Code”).

The Directors who had securities transactions in the Company’s shares during the year had informed the Chairman of their intention of dealing prior to the transactions and provided the Company with details of the transactions thereafter in compliance with the Directors’ Securities Dealing Code. Interests in the Company’s shares and share options held by the Directors as at 31 December 2008 are set out in the Report of Directors section of this Annual Report.

The Company has made specific enquiry of all the Directors who confirmed compliance with the required standard set out in the Directors’ Securities Dealing Code throughout the year.

Securities Transactions by Relevant EmployeesThe Board has adopted the Model Code for Securities Transactions by Relevant Employees (the “Employees’ Securities Dealing Code”) setting out the guidelines for relevant employees (the “Relevant Employees”) in respect of their dealings in the securities of the Company. The requirements under the Employees’ Securities Dealing Code are the same as those under the Directors’ Securities Dealing Code.

The Relevant Employees who had securities transactions in the Company’s shares during the year had informed the Chairman or the Chief Financial Officer of their intention of dealing prior to the transactions and provided the Company with details of the transactions thereafter in compliance with the Employees’ Securities Dealing Code.

The Company has made specific enquiry of all the Relevant Employees who confirmed compliance with the required standard set out in the Employees’ Securities Dealing Code throughout the year.


| Report of the Directors32

The Directors submit their report together with the audited financial statements for the year ended 31 December 2008.

Principal Activities and Geographical Analysis of OperationsThe principal activity of the Company is investment holding.

The principal activities of the Company’s subsidiaries are the ownership and operation of hotels and associated properties and the provision of hotel management and related services. The Company’s subsidiaries are also the registered proprietors of various trademarks and service marks in various countries, including the brand names “Shangri-La”, “Traders”, “Rasa”, “Summer Palace” and “Shang Palace” and related devices and logos.

The principal activities of the Company’s associates are the leasing of office, commercial, residential and exhibition hall space and serviced apartments as well as the ownership and operation of hotels.

An analysis of the Group’s performance for the year by geographical and business segments is set out in Note 5 to the consolidated financial statements.

Results and AppropriationsThe results for the year are set out in the consolidated income statement on page 64.

The Board has declared an interim dividend of HK14 cents per share for the year.

The details of dividends paid and proposed during the year are set out in Note 34 to the consolidated financial statements.

ReservesThe details of movements in reserves during the year are set out in Notes 18 and 19 to the consolidated financial statements.

DonationsCharitable donations and other donations made by the Group during the year amounted to US$1,454,000.

Fixed AssetsThe details of movements in fixed assets during the year are set out in Notes 7 and 8 to the consolidated financial statements.

Report of the Directors | 33

Principal PropertiesThe details of the hotel properties and investment properties are set out in Notes 40 and 41 to the consolidated financial statements respectively.

Share CapitalThe details of share capital are set out in Note 18 to the consolidated financial statements.

Subsidiaries and AssociatesThe details of the Company’s principal subsidiaries and associates are set out in Note 39 to the consolidated financial statements.

Particulars of Bank Loans and OverdraftsThe particulars of bank loans and overdrafts as at 31 December 2008 are set out in Note 20 to the consolidated financial statements.

Results, Assets and LiabilitiesThe results, assets and liabilities of the Group for the last five financial years are set out on page 148.

DirectorsThe Directors who held office during the year and up to the date of this report were:

Mr KUOK Khoon Ean (appointed as Director on 1 April 2008 and as Chairman on 2 April 2008) Mr KUOK Khoon Loong, Edward (resigned as Chairman and appointed as President and Chief Executive Officer on 2 April 2008) Mr LUI Man Shing (Deputy Chairman) Mr Giovanni ANGELINI Mr Madhu Rama Chandra RAO (appointed on 18 December 2008)# Madam KUOK Oon Kwong# Mr HO Kian Guan# Mr Roberto V. ONGPIN+ Mr Alexander Reid HAMILTON+ Mr WONG Kai Man, BBS, JP+ Mr Timothy David DATTELS+ Mr Michael Wing-Nin CHIU# Mr HO Kian Hock (Alternate to Mr HO Kian Guan) Mr NG Si Fong, Alan (retired on 23 May 2008)# Mr LEE Yong Sun (retired on 23 May 2008)

# Non-Executive Directors+ Independent Non-Executive Directors

Mr LUI Man Shing, Mr Giovanni ANGELINI, Madam KUOK Oon Kwong and Mr WONG Kai Man, BBS, JP retire by rotation in accordance with Bye-Law 99 of the Company’s Bye-Laws. All retiring Directors, being eligible, offer themselves for re-election.



Directors’ Interests and Short Positions in Shares, Underlying Shares and DebenturesAs at 31 December 2008, the interests and short positions of the Directors in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) (the “Associated Corporations”) as recorded in the register required to be kept by the Company under Section 352 of the SFO or as otherwise notified to the Company and the HKSE pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) set out in Appendix 10 of the HK Listing Rules were as follows:

(a) Long positions in shares of the Company and Associated Corporations

Number of Shares Held

Percentage ofTotal Issued

Share Capitalof the RelevantCompany as at

Name of Company Name of DirectorClass of

SharesPersonal Interests

Family Interests

Corporate Interests

Other Interests Total

31 December 2008

(Note 1)

(i) The Company Mr KUOK Khoon Ean Ordinary 438,240 79,693(Note 2)

1,808,240(Note 3)

– 2,326,173 0.08%

Mr KUOK Khoon Loong, Edward Ordinary 1,032,222 – – – 1,032,222 0.04%Mr LUI Man Shing Ordinary 833,333 – – – 833,333 0.03%Mr Giovanni ANGELINI Ordinary 316,666 – – – 316,666 0.01%Mr Madhu Rama Chandra RAO Ordinary 30,000 – – – 30,000 0.00%Madam KUOK Oon Kwong Ordinary 168,197 213,345

(Note 2)120,747(Note 4)

– 502,289 0.02%

Mr HO Kian Guan Ordinary 628,750 – 117,832,393(Note 5)

– 118,461,143 4.11%

Mr HO Kian Hock (Alternate to Mr HO Kian Guan)

Ordinary – – 117,832,393(Note 5)

– 117,832,393 4.08%

(ii) Associated CorporationsShangri-La Hotels (Malaysia) Berhad

Madam KUOK Oon Kwong Ordinary – – 10,000(Note 4)

– 10,000 0.00%

Shangri-La Hotel Public Company Limited

Mr LUI Man Shing Ordinary 10,000 – – – 10,000 0.01%

Report of the Directors | 35

Notes:

1. These shares were held by the relevant Directors as beneficial owners.

2. These shares were held by the spouse of the relevant Directors.

3. These shares were held through a company which was controlled as to 100% by Mr KUOK Khoon Ean and his spouse.

4. These shares were held through a company which was controlled as to 50% by Madam KUOK Oon Kwong.

5. 77,164,807 shares were held through companies which were controlled as to 50% by each of Mr HO Kian Guan and Mr HO Kian Hock.

4,628,719 shares were held through a company which was controlled as to 25% by each of Mr HO Kian Guan and Mr HO Kian Hock.

4,323,268 shares were held through a company which was controlled as to 13.33% and 7.08% by Mr HO Kian Guan and Mr HO Kian Hock respectively.

31,715,599 shares were held through companies which were controlled as to 6.7% and 6.81% by Mr HO Kian Guan and Mr HO Kian Hock respectively.

(b) Long positions in underlying shares of the Company and Associated CorporationsAs at 31 December 2008, details of share options granted under the Executive Option Scheme and the New Option Scheme to the Directors of the Company who held office during the year were stated in the section headed “SHARE OPTIONS” of this report.

Save as mentioned above, as at 31 December 2008, none of the Directors had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its Associated Corporations which had been recorded in the register required to be kept by the Company under Section 352 of the SFO or as otherwise notified to the Company and the HKSE pursuant to the Model Code.

Directors’ Interests in ContractsNo contracts of significance in relation to the Group’s business to which the Company or its subsidiaries was a party, and in which any Director had a material interest, subsisted at the end of the year or at any time during the year.

Directors’ Interests in Competing BusinessPursuant to Rule 8.10 of the HK Listing Rules, the Company disclosed below that during the year and up to the date of this report, the following Directors are considered to have interests in the businesses which compete or are likely to compete, either directly or indirectly, with the businesses of the Group, other than those businesses where the Directors of the Company have been appointed/were appointed as Directors to represent the interests of the Company and/or the Group:

(i) Madam KUOK Oon Kwong is a Non-Executive Director of Allgreen Properties Limited (“APL”), a company listed on the Singapore Exchange Securities Trading Limited.



APL Group of companies (“APL Group”) has a diversified portfolio of properties in Singapore including serviced apartments. Shangri-La Hotel Limited, Singapore (“SHL”), a wholly owned subsidiary of the Company, also owns a serviced apartment and condominium development in Singapore. While SHL and the APL Group may compete with each other in the area of serviced apartment business, the Directors believe that this competition does not pose any material threat to SHL’s business prospects because:

– SHL is principally engaged in the hotel business;

– the serviced apartment business is an ancillary part of SHL’s hotel business;

– the Group’s hotel business is effectively marketed on the strength of Shangri-La International Hotel Management Limited’s (“SLIM’s”) renowned position in the hotel industry worldwide built on its strong brands, brand recognition and high-quality services;

– SHL’s serviced apartment business is effectively marketed on the strength of SLIM’s renowned and high-quality services; and

– Madam KUOK Oon Kwong is only a Non-Executive Director of APL.

(ii) Messrs HO Kian Guan and HO Kian Hock are substantial shareholders and Directors of the company which holds River View Hotel, Singapore. Messrs HO Kian Guan and HO Kian Hock are substantial shareholders of the company which holds

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